Catalyzing Consumption and Balancing Growth

China has weathered the Great Recession well. But the world now waits to see if China can sustain last year’s impressive domestic demand, and if the government can put household consumption front and center in the country's growth model.

WASHINGTON , DC – China has weathered the Great Recession well. The world now waits to see if last year’s impressive domestic demand growth can be sustained, and if China can, in the words of Prime Minister Wen Jiabao, “give full play to the leading role of…consumer demand in driving economic growth.”

The Chinese consumer has been held back for too long, and now must be put front and center in China’s growth model. China’s government is already moving ahead on multiple fronts to attain this goal as was clear from announcements at this week’s National People’s Congress.

Of the many factors that have decreased the share of consumption in China’s economy, declining household disposable income has been central. That, in turn, has reflected the fall in labor income as a share of the economy, owing in part to structural changes that have moved workers out of agriculture (where the labor share of income is high) and into manufacturing (where capital commands a larger share of income).